Although flu cases are still low around the United States, there are early signs of the virus beginning to spread. The flu season typically starts in October and peaks between December and February.
Before the flu season peaks, investors could consider adding medical stocks Walgreens Boots Alliance, Inc. (WBA), Clicks Group Limited (CLCGY), and CVS Health Corporation (CVS) to their watchlists.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the medical industry is well-positioned for growth.
The medical industry's growth is underpinned by the expanding market for flu drugs and vaccines, ensuring stability and resilience against economic fluctuations. The medical industry is expected to perform well as the flu season is yet to reach its peak. Flu activity peaked the most in the month of February.
Every year, millions of Americans get the flu, and several thousand have to be hospitalized. The flu also turns fatal for thousands of people. The Walgreens Flu Index shows that overall flu activity is 66% lower than at the start of the 2022-2023 flu season. However, flu activity has been rising off-late.
Walgreens’ Chief Medical Officer Kevin Ban said, “After several atypical flu seasons, this year’s Flu Index shows a more gradual ramp-up of flu activity closer to the pre-COVID norm.
“While it’s early days and flu season is always unpredictable, our historical data suggest this could be a return to a typical two-wave flu season where activity starts to peak in December and reaches its highest point in February, rather than the single peak we saw last year, which was earlier but lower than the norm,” he added.
The Centers for Disease Control and Prevention (CDC) recommends that everyone above six months of age should get a flu vaccine each year, including those who are pregnant. Moreover, for the first time ever, vaccines are now available to protect people against severe illness caused by three respiratory viruses, including flu, COVID-19, and RSV.
According to WastewaterSCAN, there are early signs of these three viruses spreading already, although at relatively lower levels. “We have started to see some increases in the rate at which we’re detecting flu across the country” as well as RSV, said Marlene Wolfe, an assistant professor of environmental health at Emory University and program director for WastewaterSCAN.
The anticipation of a rise in flu and other respiratory viruses is expected to boost the demand for flu shots. This is expected to be beneficial for these above-mentioned medical companies. Moreover, the long-term growth of drug stores looks solid as the U.S. pharmacy market is expected to grow at a CAGR of 3.7% to reach a market size of $708.90 billion by 2030.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Medical – Drug Stores industry picks, beginning with the third choice.
Stock #3: Walgreens Boots Alliance, Inc. (WBA)
WBA operates as a healthcare, pharmacy, and retail company in the United States, the United Kingdom, Germany, and internationally. It operates through three segments: U.S. Retail Pharmacy, International, and U.S. Healthcare.
On August 3, 2023, WBA announced the sale of AmerisourceBergen Corporation (ABC) common stock through prepaid variable share forward transactions, yielding about $1.6 billion in proceeds.
Additionally, WBA is engaging in a concurrent share repurchase by ABC for around $250 million, with WBA's ownership of ABC stock expected to decrease to approximately 16%. The prepaid share forward transactions will settle in 2026, with the proceeds primarily directed toward debt reduction and general corporate purposes.
In terms of the trailing-12-month asset turnover ratio, WBA’s 1.49 is 68% higher than the 0.89x industry average.
WBA’s sales for the fourth quarter ended August 31, 2023, increased 9.2% year-over-year to $35.42 billion. Its gross profit increased 1% from the prior-year quarter to $6.48 billion.
On the other hand, the company’s adjusted net earnings and adjusted net earnings per common share came in at $575 million and $0.67, representing a decrease of 17.1% and 16.3% year-over-year, respectively.
Street expects WBA’s EPS for the quarter ending November 30, 2023, to decrease 44.8% year-over-year to $0.64, while its revenue for the same quarter is expected to increase 4.7% year-over-year to $34.96 billion. Over the past month, the stock has declined 4.1% to close the last trading session at $21.50.
WBA’s uncertain outlook justifies its overall rating of C, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #3 out of 4 stocks in the Medical – Drug Stores industry. It has a C grade for Growth, Stability, and Quality. Click here to see WBA’s ratings for Value, Momentum, and Sentiment.
Stock #2: Clicks Group Limited (CLCGY)
Headquartered in Cape Town, South Africa, CLCGY operates as a health, wellness, and beauty retailer, and pharmaceutical distributor and wholesaler in South Africa. The company operates in two segments, Retail and Distribution. It retails pharmacy, health, and beauty through approximately 837 stores and 673 in-store pharmacies for the middle to upper-income markets under the Clicks name.
In terms of the trailing-12-month EBIT margin, CLCGY’s 8.70% is 10.3% higher than the 7.89% industry average. Likewise, its 2.26x trailing-12-month asset turnover ratio is 154.5% higher than the 0.89x industry average.
CLCGY’s revenue for the fiscal year ended August 31, 2023, increased 4.8% year-over-year to ZAR44.56 billion ($2.41 billion). Its gross profit increased 10.5% over the same period last year to ZAR9.31 billion ($0.50 billion).
Additionally, its profit for the year and earnings per share came in at ZAR2.54 billion ($0.14 billion) and 1,042.30 cents, representing a decrease of 3.8% and 3.5%, respectively.
For the fiscal year ended August 31, 2023, CLCGY’s revenue is expected to increase 10.6% year-over-year to $2.43 billion. Over the past nine months, the stock has declined 5.5% to close the last trading session at $31.37.
CLCGY’s outlook is reflected in its POWR Ratings. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.
It has a C grade for Growth, Value, and Sentiment. Within the same industry, it is ranked #2. Click here to see CLCGY’s Momentum, Stability, and Quality ratings.
Stock #1: CVS Health Corporation (CVS)
CVS provides health services in the United States. It operates through Health Care Benefits, Pharmacy Services, and Retail/LTC segments. Its offerings include health & wellness services, health plans, pharmacy services, and prescription drug coverage.
On May 2, 2023, CVS announced the completion of its acquisition of Oak Street Health, enhancing its value-based primary care to benefit patients, particularly in underserved communities. Oak Street Health will function as a multi-payor primary care provider within CVS.
In terms of the trailing-12-month EBIT margin, CVS’ 4.05% is significantly higher than the 0.15% industry average. Likewise, its 1.44x asset turnover ratio is 279% higher than the 0.38x industry average. Additionally, the stock’s 3.46% trailing-12-month levered FCF margin is significantly higher than the 0.25% industry average.
For the fiscal third quarter that ended September 30, 2023, CVS’ total revenues increased 10.6% year-over-year to $89.76 billion. Its product revenue rose 6.3% year-over-year to $61.30 billion. The company’s adjusted operating income rose 2.5% year-over-year to $4.46 billion. Moreover, its adjusted EPS amounted to $2.21, up 1.8% over the prior year quarter.
Analysts expect CVS’ EPS and revenue for the quarter ending December 31, 2023, to increase 0.2% and 7.3% year-over-year to $1.99 and $90 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined 0.1% to close the last trading session at $69.64.
It’s no surprise that CVS has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has a B grade for Value, Stability, and Sentiment. Within the Medical – Drug Stores industry, it is ranked first. To see CVS’ ratings for Growth, Momentum, and Quality, click here.
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CVS shares were trading at $70.66 per share on Friday afternoon, up $1.02 (+1.46%). Year-to-date, CVS has declined -21.73%, versus a 15.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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